How do you get rid of 100 partners? Ask Freshfields. In what is the biggest cull in law firm history, the magic circle firm will have axed 20 per cent of its equity partnership by the end of this financial year. And it will have refashioned itself into an overtly corporate-led firm, with any pretensions to finance leadership finally out of the window.
Was there ever such a revolution? To put this into context, 100 partners is just about the equivalent of Wragge & Co’s entire partnership. The whole process – including the support staff restructuring – is going to cost £40m this financial year. And that’s on top of the £16m put aside for severance packages in 2005-06. The upside is that the remaining equity partners are looking at a potential average of £1.2m in profit in 2007-08, so long as the corporate boom continues.
Indeed, what has made the process easier for chief executive Ted Burke is the accidental economic timing. Freshfields is absolutely at the top of its game: its public M&A practice is going like a train and it has the best private equity business in the magic circle bar Clifford Chance‘s.
I’m not sure Freshfields partners are fixated on Linklaters‘ numbers down to the last penny, although they’ve certainly been galvanised by Linklaters’ success. “This isn’t driven by greed,” says an insider. “We just don’t like it when our rivals make more than us.”
Finance will still be an important element of Freshfields’ offering, but only in selected areas, and it won’t define the culture of the firm. At the half-year stage the finance department was running on an average profit per point of £17,000 compared with the corporate department’s average of £26,000. Furthermore, the recent rejig of industry sector leaders saw London corporate partners in the ascendancy, so no prizes for guessing where the political power is.
Rather cutely, Freshfields is not only surpassing Linklaters in its clearout, but it has also learnt from the Linklaters experience. One of the reasons Freshfields is having a less fraught ride than Linklaters (the odd disgruntled ex-partner notwithstanding) is because it’s not opting for cloak-and-dagger tactics. The Linklaters management would constantly deny a restructure was ever happening; Freshfields, by contrast, is being much more grown-up about the whole business.
The Freshfields cull doesn’t mean the equity will be kept artificially small. On the contrary, axing 100 partners will free up thousands of equity points. Promotions all round?